There is always a risk when it comes to real estate investing. Unknown issues can crop up which result in money down the drain. The goal is to minimize these risks as best you can to get the most profit. If you keep these three tips in mind while searching for your next real estate investment then you will be on the right track.
1. Bigger and better isn't always a money maker
Most investors dream about a perfect location with a newly renovated and massive rental. If you find that big and beautiful investment opportunity then it might not be as good as it looks. Sometimes the fancier properties will give you a negative cash flow in comparison to more downsized locations.
You must make sure that your return rate will be at least as good as if your money was still in liquid asset form. For example let's say that your investment money is currently sitting in stocks which give you a five percent earning rate. You must know that your new real estate investment can give you that same return, if not better. You can accomplish this by purchasing a positive cash-on-cash return property.
2. Time is money - so treat it the same way
Some properties take a lot more of your attention and time than other ones. If the property will take a lot of your time then consider that as lost profit. Properties that can be rented out to long-term type tenants are the easiest on real estate investors. If you need to spend a lot of time fixing problems and finding new tenants then you will be wasting your time. Quick time-wasters include vacation properties, properties in bad areas, or rentals near college campuses.
3. Market research is key
It is essential to know your market. Do some research and find out if the property in question is market value. A market value home will likely give a market value return, losing you some money. It is smarter to find a property that is underpriced. The only way to know if they are a good value is to keep a constant eye on the market.
4. Always risky but not too risky
As you know, real estate will always be a risk. You will put your neck out for a good property and cross your fingers that it goes well. If you have little experience in real estate then just make sure not to invest in super high risk properties. What is super high risk? Land, fixer uppers and private real estate are just some examples. Between all the variables of risk it is really easy to lose your hard earned money.
5. Consider putting money into REITs
REITs, or a real estate investment trusts, can be a smart option for investors who are interested in putting real estate into their portfolio. These are companies that own and develop real estate assets. They are publicly traded, offering a safer yet diverse investment opportunity. If you consider investing in REITs then an experienced real estate attorney can help you negotiate land use approvals, obtain loans, and plan joint ventures.
The most successful real estate investors learn how to balance their risks. Keep your portfolio diverse and your eye on the market. Contact a real estate attorney for the best outcome with real estate transactions and partnerships.